The U.S. dollar has been navigating choppy waters amid a volatile economic backdrop, recently finding some stability after a pullback that unsettled Wall Street. The turbulence was amplified by news of a criminal investigation tied to Federal Reserve Chair Jerome Powell, alongside mounting political pressure on the central bank. Former Federal Reserve and Treasury officials have publicly criticized these developments, echoing broader concerns voiced by global central bankers. Market sentiment remains cautious, particularly with little expectation of a rate cut over the Federal Reserve’s next three meetings. Adding to the uncertainty is a pending decision from the U.S. Supreme Court on former President Donald Trump’s use of emergency tariff powers.
Offering perspective on the dollar’s path forward is Elias Haddad, Vice President and Global Head of Market Strategy for the Foreign Exchange team at Brown Brothers Harriman. Haddad outlined the forces currently shaping the currency, pointing to a mix of economic data, political developments, and geopolitical risk that continues to influence market direction.
“Despite the uncertainty surrounding political interference with the Fed’s independence, the dollar receives support from recent ‘Goldilocks’ data out of the U.S.,” Haddad said. The data reflects an economy that is neither overheating nor sliding toward recession. In his view, the lack of clear signs pointing to an overly tight labor market has helped reinforce that balance.
Haddad expanded on the data underpinning the dollar’s recent resilience, suggesting that current Federal Reserve policy appears well calibrated. Recent Producer Price Index (PPI) readings show that producers are largely absorbing higher costs rather than passing them on to consumers. At the same time, the ISM prices paid index, often viewed as a leading inflation indicator, points to easing price pressures. Together, these trends suggest that inflation concerns are diminishing, giving the Fed flexibility to consider rate cuts later in the year.
Two core factors continue to shape Haddad’s outlook for the dollar: inflation trends and labor market conditions. While inflation has moderated, employment data paints a more mixed picture. Recent non-farm payrolls reports show job gains concentrated mainly in healthcare and social assistance, sectors considered non-cyclical. That concentration raises questions about the broader strength of the labor market. Haddad noted that in the three months leading up to December, nearly 20,000 jobs were lost, a development that adds to concerns about underlying momentum.
Turning to major currency pairs, Haddad outlined his expectations for the euro and the Japanese yen. He sees strong support for the euro near the 1.15 level, while dollar/yen is likely to trade north of 160. Looking further ahead, he suggested that 2026 will be heavily influenced by fiscal policy, with fiscal credibility and interest rate differentials emerging as key drivers of currency performance.
“On those two fronts—fiscal and monetary policy—the signs do not bode well for the U.S. dollar,” Haddad said, signaling potential downside risk, particularly against the yen. His view underscores the growing importance of fiscal discipline alongside central bank policy as markets reassess long-term currency valuations.
As the dollar contends with geopolitical uncertainty, easing inflation, and shifting labor market dynamics, Haddad’s analysis provides important context for investors and policymakers alike. The months ahead are likely to test how effectively policy responses can support confidence in the currency. With fiscal credibility increasingly in focus, market participants will be watching closely to see how these evolving narratives shape the dollar’s trajectory and broader investment strategies.